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Flush with funding, homelessness department shows persistent underspending

With funding for homelessness poised to grow, San Francisco’s Department of Homelessness and Supportive Housing (HSH) is still laboring to get money out the door and has not established a system for tracking how effectively funds are spent. 

Top brass at HSH, which administers most of its services through outside service providers, said at a hearing on Thursday that while the department has made strides in hiring since an audit last year, a large chunk of budgeted funds goes unspent. 

“Underspending has been a challenge since the creation of the department,” said HSH Director Shireen McSpadden, who assumed the post just weeks ago. 

In August 2020, an audit by the Budget & Legislative Analyst found that about 17 percent of the department’s budget for contracts went unspent each year between 2016 and 2019. That amounted to tens of millions in unused funds, which have simply carried over into future years. 

The department’s budget has grown significantly since it was first created in 2016. In its first year of operation, its budget was $116 million. During COVID, it swelled to more than $850 million owing to an infusion of federal and state COVID funds. The department’s budget amounts to more than a billion dollars over the next two fiscal years, with $671 million budgeted next year and $596 million the following year. 

Last year’s audit revealed chronic understaffing, with 26 percent of budgeted positions sitting vacant. It also found that HSH had no internal policy for evaluating service providers who receive funds, noting “widespread inconsistencies” in program monitoring. The department could only produce monitoring reports for nine of 20 contracts that the budget analysts requested. 

Over the next two years, HSH’s budget includes about $465 million in contracts with community-based organizations. According to a city database, HSH’s largest awards in fiscal 2020 went to Tenderloin Housing Clinic, Episcopal Community Services, St. Vincent de Paul Society and Tides Center, a self-described nonprofit accelerator. 

An update presented on Thursday showed that the department has made strides in filling vacant positions, with vacancies falling to 9 percent as of June 30. But unspent funds remain stubbornly high, with about $28 million going unspent in fiscal 2021, or about 14 percent of HSH’s contract budget. San Francisco’s fiscal years run from July 1 to June 30.  

“We certainly want the underspending to be at a minimum…in my experience there’s always a little bit of underspending as you’re standing up new programs,” said McSpadden, who previously led San Francisco’s Department of Disability and Aging Services. 

San Francisco’s homeless population has grown in recent years, with biennial point-in-time counts showing an increase of 17 percent to 8,035 between 2017 and 2019. The city canceled its 2021 point-in-time count due to COVID, but state data suggest a continued surge in homelessness last year. 

Federal, state and local resources are pouring into initiatives to address the growing crisis. 

Governor Gavin Newsom and the state legislature agreed on a $12 billion spending plan on homelessness and affordable housing, $1 billion of which will be allocated to cities and counties over the next two years. In addition to federal COVID funds, which have been directed to the city’s shelter-in-place hotel program and other emergency uses, the U.S. Department of Housing and Urban Development will grant more than $18 million in direct aid to San Francisco for rent vouchers and other homelessness prevention efforts. 

Locally, $234 million in funds from Proposition C, a tax passed in 2018 that was tied up in litigation until last year, will be carried forward into next year’s budget. HSH has not yet presented a spending plan for those funds, which have been held in reserve throughout the litigation process, but plans to do so in collaboration with the Our City Our Home committee, which advises on spending of Prop C funds.

Alongside an expected rise in homelessness spending, some state officials have pushed for greater accountability in how funds are spent. 

A state audit published in February 2021 lambasted California’s “disjointed” response to homelessness. The state currently has no centralized system for tracking and evaluating service providers, and some Continuums of Care—regional planning entities that coordinate homelessness services—do not employ best practices in evaluating services, according to the audit. 

A state bill, AB-816, seeks to require a statewide analysis of homelessness spending and sets forth a goal of reducing homelessness by 90 percent by 2028. Among other changes, the bill would establish a Homelessness Inspector General and mandate specific goals for local governments in reducing homelessness. 

As part of Mayor London Breed’s broader homelessness plan, HSH aims to add up to 4,000 new housing placements, amp up anti-eviction programs, support two new safe parking sites and cap rents at supportive housing sites at 30 percent of a renter’s income. Some of the specific line items in HSH’s budget drew scrutiny, such as a $15 million program to maintain about 270 sanctioned tents

“I think what I hear over and over again from my constituents about homelessness in San Francisco is: How is it that we spend so many hundreds of millions, billions of dollars, on homelessness and our street conditions…are so bad?” said Supervisor Rafael Mandelman at Thursday’s hearing. 

The department has made “significant strides” in program monitoring since last year’s audit, according to McSpadden, and is beginning to draft standardized performance metrics for service providers. That will be completed in 2024, she said.